Ambika Construction Vs. Income-tax Officer and ors. - Court Judgment

Excerpt:

- .....of any circular has to be made effective with reference to the year of assessment and not at the time of final assessment. therefore, in fact, for the particular year of assessment, circular no. 684 (see [1994] 208 itr 8), of the central board of direct taxes was in force and later modified vide circular no. 737 (see : [1996]218itr97(all) ), dated february 23, 1996. therefore, the assessee was entitled to have the assessment made and completed in accordance with the previous circular. in support of such a proposition reliance was made to a case of cit v. b.m. edward, india sea foods : [1979]119itr334(ker) . reliance was also made to a decision of the apex court in the case of k.p. varghese v. ito : [1981]131itr597(sc) , to show that a statutory provision must be so construed that absurdity and mischief may be avoided. therefore, if literal interpretation of a provision produces an absurd and unjust result which was never intended by the legislature, the court may modify such a language to avoid the mischief. 3. yet reliance was also made to another decision in the case of navnit lal c. javeri v. k.k. sen, aac : [1965]56itr198(sc) . 4. in my view, there is no doubt.....

Judgment:

1. In this writ petition under Article 226 of the Constitution, the petitioner, Ambika Construction, a partnership firm, has prayed for quashing the order of the Income-tax Officer, dated November 18, 1996 (annexure-3 series), under Section 143(1)/184 of the Income-tax Act and to declare that the effect of the Central Board of Direct Taxes Circular No. 737 (see : [1996]218ITR97(All) ), dated February 23, 1996, cannot be applied retrospectively so as to take away the petitioner's right duly accrued under the provisions of the Central Board of Direct Taxes Circular No. 684 (see [1994] 208 ITR 8), dated June 10, 1994, contained in annexure-2.

2. It is contended that the assessment order itself would indicate that the case was selected for scrutiny under Section 44AD of the Act. The petitioner, therefore, explained and submitted a return as per Circular No. 684 (see [1994] 208 ITR 8), (annexure-2). But at the time of final order dated November 18, 1996, contained in annexure-3 the respondent-Income-tax Officer made assessment applying certain procedures of Circular No. 737 (see : [1996]218ITR97(All) ), (annexure-4), although it was issued on February 23, 1996. It was further contended that applicability of any circular has to be made effective with reference to the year of assessment and not at the time of final assessment. Therefore, in fact, for the particular year of assessment, Circular No. 684 (see [1994] 208 ITR 8), of the Central Board of Direct Taxes was in force and later modified vide Circular No. 737 (see : [1996]218ITR97(All) ), dated February 23, 1996. Therefore, the assessee was entitled to have the assessment made and completed in accordance with the previous circular. In support of such a proposition reliance was made to a case of CIT v. B.M. Edward, India Sea Foods : [1979]119ITR334(Ker) . Reliance was also made to a decision of the apex court in the case of K.P. Varghese v. ITO : [1981]131ITR597(SC) , to show that a statutory provision must be so construed that absurdity and mischief may be avoided. Therefore, if literal interpretation of a provision produces an absurd and unjust result which was never intended by the Legislature, the court may modify such a language to avoid the mischief.

3. Yet reliance was also made to another decision in the case of Navnit Lal C. Javeri v. K.K. Sen, AAC : [1965]56ITR198(SC) .

4. In my view, there is no doubt that effect of any circular cannot be applied retrospectively so as to deprive the assessee of the benefit of the earlier circular, which was applicable at the time of assessment. But in the present case at the time of the assessment by the Income-tax Officer, Circular No. 737 (see : [1996]218ITR97(All) ), had already occupied the field. Because I have already noticed that final order of assessment in this case was passed on November 18, 1996, whereas the circular was already brought into effect on February 23, 1996.

5. That apart Mr. Rastogi pointed out that the relevant part of the Circular No. 684 (see [1994] 208 ITR 8), was contrary to the provisions of the Act and as such it was not binding on the officers of the Income-tax Department Therefore, Circular No. 737 (see : [1996]218ITR97(All) ), was issued to clarify the ambiguity of the previous circular. He contended that it has already been held by the apex court in the case of Kerala Financial Corporation v. CIT : [1994]210ITR129(SC) that a circular which detracts from the provisions of the Act, is not binding on the Income-tax Department. That apart similar writ petitions filed on behalf of other persons, bearing C. W. J. C. No. 10338 of 1996 and analogous cases were dismissed as withdrawn before this court on October 18, 1996.

6. In my view, having regard to the facts noticed above, as also since at the time of final assessment, Circular No. 737 (see : [1996]218ITR97(All) ), dated February 23, 1996, had already come into force, no grievance can be made that such a circular has been applied retrospectively.

7. Therefore, for the reasons stated above, I answer the question against the petitioner. But certainly with liberty to file an appeal before the competent authority with regard to any other grievance.

8. Subject to the aforesaid liberty, this writ application is dismissed.